Digital Growth And Lower LDR Will Drive Future Opportunities In Turkish Banking

Key Takeaways

• Akbank's strategy to lower its LDR and exploit lower inflation conditions positions it for margin and earnings growth through an enhanced net interest margin.
  
• Expansion in fee-based business and digital growth anchor Akbank's revenue growth, improving profitability and supporting stable, long-term earnings.
  
• Challenging economic conditions, tight monetary policy, and regulatory changes could suppress Akbank's growth and profitability while complicating financial reporting.

Catalysts

Provides various banking products and services in Turkey and internationally.

• Akbank's low Turkish lira loan-to-deposit ratio (LDR) offers considerable potential for enhancing net interest margin, especially once the economy transitions into a lower inflationary environment. This improvement can positively impact the company's margins and earnings.
  
• The bank's focus on expanding its fee-based business and cross-selling opportunities has led to significant growth in fee income, surpassing operational expense growth. This is expected to enhance profitability through improved core revenue and earnings.
  
• Strategic initiatives in extending loan maturities and capturing market share in segments like consumer and SME loans are intended to secure longer-term revenue streams and leverage market dynamics, positively influencing both revenue and net interest income.
  
• Akbank's balance sheet is structured to benefit from an eventual decrease in interest rates and macro prudential measures, offering potential for margin expansion and improved net interest income dynamics, contributing to future earnings growth.
  
• The bank's successful organic growth strategy, underpinned by a strong digital presence and customer acquisition efforts, is expected to sustain recurring revenue growth, supporting long-term stable revenue and earnings development.

Akbank T.A.S Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Akbank T.A.S's revenue will grow by 48.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 36.1% today to 36.7% in 3 years time.
• Analysts expect earnings to reach TRY 159.0 billion (and earnings per share of TRY 32.9) by about December 2027, up from TRY 48.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 5.4x on those 2027 earnings, down from 6.8x today. This future PE is lower than the current PE for the TR Banks industry at 12.9x.
• Analysts expect the number of shares outstanding to decline by 2.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 32.08%, as per the Simply Wall St company report.

Akbank T.A.S Future Earnings Per Share Growth

Risks

• The weak global backdrop and the effects of monetary tightening create a challenging economic environment, which could suppress economic growth and potentially impact Akbank's revenues and profitability.
  
• Tight monetary policies and high borrowing rates have slowed down Turkish loan growth, affecting the demand for loans and putting pressure on the bank's net interest margins.
  
• Inflation rates remain high, necessitating a tight monetary policy stance that limits the possibility for rate cuts, which could strain Akbank's ability to enhance its net interest margins.
  
• Regulatory restrictions or changes, such as the growth cap on foreign exchange loans and high reserve requirement ratios, could limit the bank's growth opportunities and affect its net interest income.
  
• The implementation of hyperinflation accounting (IAS 29) from January 2025 could add operational burdens and affect the clarity of financial reporting, potentially impacting earnings analysis.

Valuation

• The analysts have a consensus price target of TRY 76.68 for Akbank T.A.S based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of TRY 91.0, and the most bearish reporting a price target of just TRY 60.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be TRY 433.5 billion, earnings will come to TRY 159.0 billion, and it would be trading on a PE ratio of 5.4x, assuming you use a discount rate of 32.1%.
• Given the current share price of TRY 62.9, the analyst's price target of TRY 76.68 is 18.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.